Similar to private health insurance, there is little competition in Medicare Advantage (MA). The US District Court’s recent decision against the Aetna-Humana merger is a strong signal that the current Medicare Advantage market does not favor new entry. According to the Justice Department’s expert testimony in the case, only 5.5 percent of the 284 complaint counties experienced new entry from 2012 to 2016 from plans that were not either Humana or Aetna.
Yet Medicare Advantage does not have to be constrained in this way. Innovative provider groups have shown it is possible to launch an MA plan even when it may not be possible to launch a commercial insurance product. As provider groups gain experience through accountable care models, the number of organizations with the necessary skill set to manage risk and health care within a population will increase. As a result of their accountable care experience, providers are starting to explore different options to Medicare Advantage, such as CAPG’s “Third Option,” and other new models. We propose a model that is not completely new but rather is a different form of Medicare Advantage.
Since 1997, Medicare Advantage has tested the premise that the private sector can compete with Medicare in providing health care to seniors. Through its many iterations and refinements, two aspects of the program have never changed: First, to compete with Medicare, private companies must take over claims processing from the Medicare administrative contractors (MACs). Second, those companies must also create their own provider contracts. Twenty years after the program began, health care plan competition is much more than efficient claims processing and provider contract negotiations. Yet these capabilities are still two of the main barriers to entry into Medicare Advantage, blocking efficient and innovative providers from participating in the program.
We propose removing these barriers by opening up Medicare Advantage to health care providers without a dependency on legacy plan capabilities such as claims processing and network contracting. We believe that the two greatest drivers of health care value are increasing and maintaining competition and aligning incentives of physicians and other health care providers with Medicare and with Medicare beneficiaries. Our proposal will do both by building a network on top of Medicare participation—not instead of it—and leaving claims processing in the highly experienced, efficient hands of the MACs. Making this change will shift the conversation about provider networks from price concessions and market power to creation of truly patient-centric, quality-based networks led by primary care. This will result in better care for patients, while allowing traditional Medicare to realize deeper savings through competition and aligned incentives.
By removing traditional plan operations as a barrier to entry for Medicare Advantage, Medicare can create a path for successful provider groups to move into Medicare Advantage. This increase in competition will benefit both Medicare beneficiaries and health care providers.
There are six high-level ways in which a MA plan may achieve lower costs than traditional Medicare:
- More efficient administrative costs for claims processing;
- Better claim procedures preventing duplication, fraud, and abuse;
- Lower fee-for-service reimbursement rates;
- Better utilization management, resulting in reductions in unnecessary specialist and facility use;
- Better population health management, resulting in lower costs than risk scoring would predict; and
- Better care management, resulting in lower costs than risk scoring would predict for specific segments of the population.
Today, traditional insurers who excel at the first four methods in the list are finding that some health care providers excel at the last two methods. Plans are then using savings or global capitation contracts to transfer risk for the 85 percent of premiums that must be spent on health care to those providers, while focusing on plan operations to maximize profit from the remaining 15 percent that can be spent on administration and noncovered benefits. These arrangements force capable provider groups to become reliant on contracts with incumbent plans and do not promote new entry into Medicare Advantage.
Our solution is to allow health care providers to contract with the Centers for Medicare and Medicaid Services (CMS) directly in Medicare Advantage, making them free to focus on population health, care management, and care-focused network management. CMS would continue to process claims, pursue fraud and abuse (independently or in partnership with the provider-based MA plan), provide a measure of stop-loss prevention, and set the default fee-for-service reimbursement rates for all Medicare participating providers (who are by default also MA plan participating providers). Provider-led MA plans would compensate CMS for its administrative functions. CMS administers Medicare for around 2 percent of operating expenditures, and to compensate CMS, health care providers creating new MA plans would pay 5 percent of premiums to CMS in addition to covering the cost of the claims themselves. This would cover all of Medicare’s traditional administrative costs and would also account for any additional costs incurred through plan-requested changes and dealing with the additional funding mechanism. It would even provide a guaranteed return to the Medicare trust fund, extending the solvency of Medicare.
Beyond these administrative functions, the provider-based MA plan would be empowered to come to agreement with other health care providers to pay for care differently. CMS could accommodate those changes in its claims processing, just as it currently does for the affiliate model in the Next Generation accountable care organization. However, the provider-based MA plan would not exclude Medicare participating providers from the plan. The default would always be that the provider is in the plan at traditional Medicare rates. This creates an open network similar to what Medicare beneficiaries are accustomed to in fee-for-service. The network is curated through benefit design and tighter transitional care management instead of through contract negotiations and closed networks. This strategy preserves the choice of health care providers that beneficiaries enjoy in traditional Medicare, while offering them even more guidance on navigating the complex health care system.
To pay MACs, the provider-based MA plan would establish a funding mechanism that these MACs would draw on to pay the claims. MACs could provide real-time access to claims processing for the provider-based MA plan. The provider-based MA plan would also be able to purchase additional stop-loss from CMS using the funding mechanism. This protection would reduce the risk of the provider-based MA plan for the providers, while also providing both revenue and stability to CMS.
To succeed, providers must focus on and excel at better population health management and better care management. Population health management involves knowing what is happening across the entire patient population. If a practice does not know who is in the hospital or who is leaving the emergency department, that practice can’t effectively manage its network of patients. If a practice doesn’t know who in the population is at the highest risk, that practice can’t successfully target its care management.
Successful care management takes a practice deeper into an individual patient’s care by addressing his or her medical, psychosocial, and home needs. It assists and teaches patients how to manage their health, connect with community resources, and, ultimately, improve their health status. Effective care management relies on the ability to make personal connections. It also depends on the awareness of which community resources are available for patients, so the practice can clearly determine their use and effects. Groups of providers have the unique opportunity to embed effective population health management and care management into practice workflows well before starting a plan. A plan, on the other hand, must develop them after the fact and may find it difficult to truly impact the practice’s workflow in a positive way.
We value simplicity over nearly every other attribute in model design, and to maintain that simplicity, we limit our changes to the MA program to changing who processes the claim and the creation of a default open network for Medicare beneficiaries. A provider-based MA plan would still have to meet the usual application requirements for Medicare Advantage, including reserve capital requirements required by the states of insurance plans. CMS would calculate the premium for each plan member in the same way. The plan would still have to enroll Medicare beneficiaries as members. It would be graded on quality in the same manner as other plans, and every existing beneficiary protection would remain.
Although the changes we suggest are minimal, there should be a sense of urgency to accomplish them. The temptation to simply “make a deal” with the incumbent players for a percentage of the medical loss ratio is very strong for provider groups. Medicare has an opportunity to create a path for provider groups to true ownership of the cost and quality of their Medicare beneficiaries and increase competition in Medicare Advantage at the same time.
Our proposal will spur new entry in Medicare Advantage, opening the door to a rich ecosystem of new plans by removing barriers to entry, all without imposing any additional burden on CMS. It brings additional savings into the Medicare trust fund, up to 2 percent of the total cost of care over traditional Medicare Advantage.
Twenty years ago, Medicare Advantage marked a new era in how we provide care for our seniors—centered on the principle that competition between different plans could open new opportunities for better care at lower costs. Today, we seek to preserve that competitive spirit by creating a clear way for provider-led plans to enter the arena.
Both Farzad Mostashari and Travis Broome serve in the leadership of Aledade Inc. Mostashari also serves as a health policy partner to NaviMed Capital, a Washington, D.C.-based private investment firm focused exclusively on the health care industry.